12:00AM JANUARY 28, 20192
The Malaysian government has cancelled a $US20 billion ($27.8bn) rail project, part of China’s Belt and Road infrastructure initiative, after failing to secure a price cut from Chinese contractors.
Malaysia’s Economic Affairs Minister Azmin Ali said on the weekend the Mahathir government had decided to scrap the 688km East Coast Rail Link in a cabinet meeting last week.
The Mahathir government had been in negotiations to reduce the price of the project with the China Communications Construction Company.
Work on the rail link, which was launched in September 2017 under the government of Najib Razak, was suspended last year after Mahathir Mohamad took office, pending discussions over its pricing as well as allegations of graft that have plagued the project. Mr Azmin said the government was concerned at the high interest bill it would incur to pay for the project which is 85 per cent financed by the Export-Import Bank of China.
“Cabinet decided to scrap the project because the development cost is too high and we don’t have the financial capability at the moment,” he said.
He said the interest on the project would be nearly $170m a year. “We cannot bear this right now, therefore the project needs to be cancelled without affecting our good relations with China,” he said. “We still welcome all forms of investment by China, but we will look into the matter on a case-by-case basis.”
When launched by Mr Najib, it was hailed as one of the cornerstones of China’s BRI. Mr Najib was swept from office last May when 93-year-old former prime minister Dr Mahathir won a shock election after a campaign that cited the railway as one of the big-ticket China-linked infrastructure projects he planned to cancel because of their high cost and Malaysia’s heavy debt load that blew out under the scandal-ridden Najib government.
Najib, who is now facing criminal charges for his alleged role in the multi-billion-dollar 1MDB scandal, was a big supporter of China-linked infrastructure projects in a bid to get closer to Beijing, hoping to get more financial support for his country.
The cancellation of the east-coast rail link follows Dr Mahathir’s move last August to cancel another China-backed project, a natural gas pipeline in the eastern Malaysian state of Sabah.
The cancellation of the project highlights the financial strains of the BRI where leaders in Third World countries in Asia and Africa have enthusiastically accepted the idea of major Chinese-backed infrastructure projects, only to find that they are left with heavy state debts for the projects which can see their ownership fall into the hands of Chinese companies.
Glenda Korporaal has been covering business and finance in Australia and around the world for more than thirty years. She has worked in Sydney, Canberra, Washington, New York, London, Hong Kong and Singapore an... Read more